The Credit Department's Role in Customer Retention
By Michael C. Dennis, MBA, CBF

Establishing a customer relationship is one thing, maintaining it is quite another. Customers require a high level of support and after sale service, in addition to quality products at competitive prices, in return for their loyalty. Companies have come to realize that it is far more expensive to locate, solicit, qualify and establish a relationship with the new customer than it is to find ways to keep existing customers. As a result, customer service has become an important task for every department in the company - including the credit department. The goal of the credit and collection department is to accomplish the goals assigned to it with as little damage to the relationship between the company and its customer base as possible.

There are several techniques the credit and collection department can use to do their work in a way that minimizes the impact on customer relations including these:

• Tell customers that you appreciate their business. Make your appreciation more tangible by being more flexible when addressing collection problems involving customers that have been purchasing from your company for a long time.

• Recognize that your company does not offer its products and services in a vacuum but in a competitive environment. A customer is more likely to move its business to a competitor if offered a more tempting balance of price, performance an terms of sale. Therefore, as competitors change the way they [a] establish credit limits [b] collection past due balances or [c] determine the terms of sale you must consider making similar changes.

• Before addressing a problem with a customer, the credit department must be sure it has all of the relevant facts and there is no doubt that its position is the correct one.

• To borrow an idea from baseball: All ties go to the customer. What this means is that if there is some doubt about the validity of the seller's position, in the interest of customer retention there should be a bias toward accepting or allowing the customer's point of view to prevail.

• Try to limit interactions with customers to their accounting department. Any time a creditor is working outside of its normal collection channel [such as dealing directly with the buyer] the seller's relationship is at greater risk. Why? Because the accounts payable department is accustomed to the types of questions and challenges a collector may ask - but the buyer may be shocked or offended by the directness of the collector's approach.

• Don't think of debt collection as a zero sum game, meaning the only way that the creditor wins is if the customer loses. Think of it instead as a mutually beneficial process in which the customer has the opportunity to continue to buy your company's goods and services in exchange for payment of the past due balance.

• Make certain that credit holds are used sparingly, and are truly used as a last resort. Try to notify the customer and the sales department about the possibility of a credit hold... and try to give as much advanced notice as is practical under the circumstances.

• Negotiate, don't litigate. Litigation should only be considered after every effort has been made to resolve problems amicably. Litigation should never be initiated until the credit manager and his or her manager have discussed options and alternatives, and until frank and earnest discussions have taken place with the customer [assuming it is still in business] about the seller's desire to avoid litigation if other options present themselves.

One final thought: Even though the credit department has an obligation to support and if possible strengthen the relationship between the company and its customers, it also has a duty to address and resolve past due balances as quickly and as effectively as possible. This is the tightrope that credit professionals have chosen to walk.